Now there’s no other war like David Jones

He kept his silence for 18 months. Now former
David Jones
chief executive
Mark McInnes
has lashed out at the company he ran for seven years, accusing new boss
Paul Zahra
of “rewriting history" by blaming previous management for the retailer’s current woes.

“I gave 15 years to the company and it was a large part of my career -- as a shareholder I’ve lost 30 per cent of my investment since Paul became CEO," Mr McInnes said yesterday of his former colleague and friend.

“As an investor in the company and a current shareholder I think they have to take accountability for the things going on inside the company and not just look to the external market or previous management."

Mr McInnes sold all but 20,000 of his shares after David Jones settled the sexual harassment case that led to his departure in June last year.

Mr Zahra bemoaned the decision to close the loss-making online store in 2003, comparing DJ’s current fate with that of US retailer Nordstrom, which is generating 10 per cent of sales and 20 per cent of earnings online.

Mr Zahra also regretted DJ’s underinvestment in technology, which had left the company with a 17-year-old point-of-sale system, a 10-year-old e-commerce platform and a bridal registry that relies on hand-written entries, all of which are now requiring substantial investment.

At no point did Mr Zahra, who worked with Mr McInnes for 15 years at DJs and Officeworks, refer specifically to his former boss.

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However, Mr McInnes, now chief executive at Solomon Lew’s
Just Group
, believes Mr Zahra’s version of events undermines his professional reputation. “I’m very unhappy with it [and] I don’t want to put myself in a position where I haven’t registered that," he told the Financial Review yesterday.

With sales down 11 per cent in the first quarter of this financial year, Mr McInnes accused his successor of misrepresenting the past and underplaying some of the problems that will contribute to a 15 per cent to 20 per cent fall in profit in the first half of 2011-2012.

“The article was all about blaming previous management rather than facing up to the fundamental issues facing the company today," Mr McInnes said.

These issues included the loss of four high-volume brands (Simona, sass & bide, Escada and AG) in the past 18 months. DJs argues it was willing to let the brands go and has since added 90 new brands.

Another issue Mr McInnes raised is the retention of senior staff. DJs, which employs 650 people in its head office, has lost nine executives and managers representing an accumulated 100 years of department store retail experience, he said.

Three of these people, including former head of digital marketing Georgia Chewing, will join Just Group in January. The loss of this experience – particularly that of former head of apparel
Collette Garnsey
– had affected the company’s ability to predict sales, leaving it with excess inventory.

“Whilst I was there from 2003 to 2010, the company delivered seven years of profit and dividend growth and we lived through two downturns and one of those downturn was an all-out crisis, and even in ’08 and ’09, the company still delivered profit and dividend growth and had no aged inventory," Mr McInnes said.

“In May this year they reconfirmed their profit guidance for the winter half and sales and profit slumped six weeks later. I had nothing to do with that."

Mr McInnes defended his decision to close DJ’s online store in 2003 after it racked up losses of $28 million. “In 2003, David Jones was on its knees, the share price was $1.03, the company had made a $25 million loss, the company had sold their CBD properties, and almost breached its bank covenants," Mr McInnes said.

“So to suggest a loss-making venture should have continued using another company [Nordstrom] in another country [the US] as an example nine years after the event is not really appropriate," he said.

Mr McInnes said it was he who made the decision in 2009 to relaunch the online store.

“In 2009, I recognised the explosion on Google and Facebook, I employed the team, I allocated the resources and David Jones was selling Mother’s Day gifts in May 2010. In my time we were growing and investing into that space," he said.

Quoting his successor, Mr McInnes said Mr Zahra had deliberately chosen to take a “stepped and measured approach" to online retailing and be “the tortoise rather than the hare".

A permanent online store was re-established in November last year and David Jones is currently conducting a tender for new e-commerce platform to replace the 10-year old legacy system. “It just seems there’s this ‘lets blame the external market and the previous management’ rather than take accountability for the results," he said.

He also claimed responsibility to invest in a new point-of-sale system, sending Mr Zahra and information technology chief Karen McLachlan on an international scoping tour in 2009. “Surely they can’t have forgotten that," he said.

DJs yesterday declined to respond to Mr McInnes’s claims.

However, it is understood that a new point-of-sale system had been on the company’s radar since 2000 but the board did not approve the necessary capital investment until July 2011.

Mr McInnes said the biggest challenge DJs faced was its inability to compete on price with international internet retailers such as net-a-porter and strawberrynet.

Mr Zahra is trying to improve DJ’s price competitiveness by negotiating price reductions with international cosmetic and apparel suppliers, many of which charge Australian retailers 30 per cent to 40 per cent more than retailers in the United States and the UK.

“It’s a pretty tough macro market," Mr McInnes said.

“But as an investor in the company and a current shareholder, I think they have to take accountability for the things going on inside the company and not just look to the external market or previous management."